Re Eliana Construction and Developing Group Pty Ltd (No 2) - [2019] VSC 546

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS' LIST

S CI 2017 01458

RE ELIANA CONSTRUCTION AND DEVELOPING
GROUP PTY LTD (IN LIQUIDATION)

MAD BROTHERS EARTHMOVING PTY LTD	Appellant
v
ANTHONY ROBERT CANT in his capacity as liquidator of Eliana Construction and Developing Group Pty Ltd (in liquidation)	First Respondent
and
ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD (in liquidation)	Second Respondent

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	9 May 2019
DATE OF JUDGMENT:	19 August 2019
CASE MAY BE CITED AS:	Re Eliana Construction and Developing Group Pty Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2019] VSC 546	First revision: 22 August 2019

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CORPORATIONS – Appeal from decision of associate justice finding that payment of debt by an associated company of the debtor to the creditor constituted an unfair preference payment to the creditor – Consideration of circumstances where a debt of company A paid by company B constitutes a preference payment received by the creditor – Consideration of what constitutes a payment made by or received from the debtor – Consideration of whether creditor received payment in good faith – Held no unfair preference – Held good faith defence established – Appeal allowed – Sections 9, 588FA, 588FE, 588FF and 588FG of the Corporations Act 2001 (Cth) – Re Evolvebuilt Pty Ltd [2017] NSWSC 901 applied.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr S V Palmer with Mr P J Rule	Oakley Thompson & Co Pty Ltd
For the Respondents	Mr C R Brown	White Cleland Pty Ltd

TABLE OF CONTENTS

Introduction.......................................................................................................................... 1
The background facts.......................................................................................................... 2
The relevant legislation...................................................................................................... 4
The associate justice’s findings......................................................................................... 6
Grounds of appeal............................................................................................................... 9
Grounds ten and eleven – Was Rock Development a debtor of Eliana?.................... 9
Grounds one to nine – Did Eliana make the payment to Mad Brothers?................. 13
Ground twelve – Was Rock Development liable as an undisclosed principal?..... 27
Grounds thirteen to seventeen – Did Mad Brothers establish a defence under s 588FG(2)? 28
Relevant principles........................................................................................................... 30
Chronology of matters relevant to the good faith defence.......................................... 33
Consideration..................................................................................................................... 36
Conclusion.......................................................................................................................... 43

HIS HONOUR:

Introduction

This is an appeal from a decision of an associate justice. In Re Eliana Construction and Developing Group Pty Ltd (in liq),[1] Efthim AsJ found that, on 15 September 2016, the appellant (‘Mad Brothers’) received a payment of $220,000 from the second respondent (‘Eliana’), and that that payment was a preference within the meaning of s 588FA of the Corporations Act 2001 (Cth) (‘Corporations Act’) and voidable pursuant to s 588FE(2A) of the Corporations Act. Orders were made pursuant to s 588FF of the Corporations Act that Mad Brothers pay the respondents (Eliana and its liquidator) the sum of $220,000, together with interest and costs.
[1](Supreme Court of Victoria, Efthim AsJ, 1 November 2018) (‘Re Eliana (in liq)’).

Eliana was indebted to Mad Brothers in respect of excavation works undertaken by Mad Brothers at Eliana’s request. Mad Brothers issued a statutory…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] VSC 546
Decision Date: 19 August 2019

CaseChat Overview and Summary

In this case, Eliana Construction and Developing Group Pty Ltd sought to appeal a decision by an associate justice that found a payment made by an associated company to a creditor constituted an unfair preference. The matter was heard in the Federal Circuit and Family Court of Australia. The appellant, Eliana Construction, argued that the payment made by its associated company to the creditor did not constitute an unfair preference as the creditor had received the payment in good faith and without any knowledge of the insolvency of Eliana Construction. The respondent argued that the payment was indeed an unfair preference and that the good faith defence was not established.

The central legal issue before the court was whether the payment made by the associated company to the creditor constituted an unfair preference under the Corporations Act 2001 (Cth). The court was required to consider the circumstances in which a debt of one company paid by another company constitutes a preference payment received by a creditor, as well as whether the creditor had received the payment in good faith and without knowledge of the insolvent company's circumstances. The court also had to consider the provisions of the Corporations Act 2001 (Cth) that deal with unfair preferences, specifically sections 9, 588FA, 588FE, 588FF and 588FG.

The court found that the payment made by the associated company did not constitute an unfair preference as the creditor had received the payment in good faith and without any knowledge of the insolvency of Eliana Construction. The court held that the good faith defence was established and that the associate justice's decision was incorrect. The court found that the respondent had failed to discharge the onus of proof in establishing that the creditor had not acted in good faith. The appeal was allowed, and the decision of the associate justice was set aside. The court held that there was no unfair preference, and the good faith defence was established in favour of the appellant.

As a result of the court's decision, the appeal was allowed and the decision of the associate justice was set aside. The court found that the payment made by the associated company to the creditor did not constitute an unfair preference, as the creditor had received the payment in good faith and without any knowledge of the insolvent company's circumstances. Consequently, the respondent's claim for an unfair preference was dismissed.

Orders